The 14-day variable rate repo (VRR) auction on Friday received bids worth Rs 8,375 crore against the notified amount of Rs 50,000 crore at a cut-off rate of 6.26%, indicating easing of liquidity following the Reserve Bank of India’s continuous infusion of funds.

That the durable systemic liquidity has considerably eased was also evident from the lower demand seen in the daily VRR auctions held this week. Market participants are preferring 30-day or longer liquidity that will extend into the next financial year.

Though liquidity in the system eased from 4 March, there could be tightness around March 18-20 when a A 14-day VRR is conducted due to GST and advance tax outflows at that time.

On 5 March, the RBI announced a slew of measures worth Rs 1.9 lakh crore to ease liquidity in the banking system, including the purchase of government bonds worth Rs 1 lakh crore under open market operations (OMO) in two tranches and a foreign currency buy/sell US dollar/Indian rupee currency swap auction of $10 billion for a tenor of 36 months.

Earlier, the RBI in January had announced liquidity measures which included OMO purchases of government securities worth Rs 60,000 crore in three tranches of Rs 20,000 crore each; a $5 billion swap; a 56-day variable rate repo (VRR) auction for Rs 50,000 crore; and a three-year buy/sell dollar/rupee swap auction on 21 February worth $10 billion to meet the “durable liquidity needs of the system”.